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Hong Kong: Stocks plunge at open after holiday

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[HONG KONG] Hong Kong shares sank more than 1 per cent at the start of Tuesday as investors returned from a long weekend to news that China had retaliated to US tariffs, ramping up tensions in their trade war.

The Hang Seng Index in Hong Kong plunged 2.10 per cent, or 599.12 points, to 27,951.12.

The city’s equity market, which was shut Monday for a holiday, had been relatively resilient to this month’s rapid correction onshore and worsening trade relations between the US and China. The Hang Seng benchmark is now down 5.7 per cent for May.

The benchmark Shanghai Composite Index fell 1.06 per cent, or 30.88 points, to 2,872.83. The Shenzhen Composite Index, which tracks stocks on China's second exchange, dived 1.19 per cent, or 18.44 points, to 1,533.31.

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Beijing retaliated late Monday with higher tariffs on a range of American goods, spurring a 2.4 per cent loss in the S&P 500 Index.

As a global financial center with no limits on capital flows, Hong Kong is vulnerable to worsening ties between the two nations and usually does badly during a wave of risk-off sentiment. On top of that, a weaker yuan weighs on earnings for Chinese heavyweights listed in the city.

Investors were unprepared last week for a surge in volatility, with hedging costs near the lowest in 15 months.

Softening the impact on Tuesday were comments from US President Donald Trump that talks with China will be "very successful". The offshore yuan, which on Monday weakened past 6.9 per US dollar for the first time this year, strengthened to 6.9024 per dollar.

Short selling turnover in Hong Kong’s mainboard has been increasing since early May. It accounted for about 15 per cent of total turnover in the city on Friday, the highest in more than two weeks.